IPO Pacific Brands

[Curly]

Been offered a firm allocation in Pacifac Brands. Anyone contemplating
taking them up and have you seen any articles about IPO? Price at $2.95 seems a little on the high side to me.

[The GrandMaster]

Interesting to know the apparent lack of interest in posting on this IPO. Especially considering that much derided 42 Below is up to 48 pages. I for one would be interested in some of the more regular poster's views on this.

Or is the lack of postings an indication that this is a good one.....

The GrandMaster

[tinking]

Dividend yield seems a little slim.

Has strong branding though and a solid market share.

THE KING says NO thanks at this price to many good retailers around at the moment at cheaper pricers.[8D]

Regards tinking from THE KING

[willy_wonker]

I like Pacific Brands, cos I like Kylie M.

and why not ! []

[Long Strangle]

Good interest in Ausi. No stock at Citigroup & I believe they had a very large allocation. Not too much risk as the final price is set by the institutions. I can see a decent refund on the offer price.

[marinesalvor]

nothing really wrong with it - I am just keen on a few others instead

[CAM]

found this on another site
thought you guys and girls might be interested

Have any of you seen the prospectus? I have and I take my hat off to the venture capitalists flogging the business, especially if they get it away on time and on price.

On page 2 of the prospectus, the Key Offer statistics includes the following:

Retail Application Price: $2.60 per share
Total number of shares available under the offer [and on issue following the offer]: 503 million

Forecast year-ending 30 June 2005
EPS pre-goodwill amortisation 19.5 cents
Price earnings ratio (pre-goodwill amortisation) 11.5 – 13.3x

Net debt of $466.5 million

The next 20 or so pages of the prospectus demonstrates that Pacific Brands has a considerable stable of branded merchandise, much of which must be widely recognised by many Australians, IMO.

But, the alarm bells went off for me when I got to page 23 and the 'Summary of key information.' There one can find the neatly tabulated historical EBITDA, EBITA and EBIT figures (which are of very limited use, IMHO) but no NPAT or EPS figures. Admittedly, there are pro forma FY04 and 05 NPAT and EPS forecasts, but where are the real historicals?

The answer is, there aren't any. Well, that's not entirely true. Page 135 (safely tucked away in Appendix I) has a statement of financial performance for the six months ended December 2003 and the FY ended 30 June 2003, which includes the following:

FY to 30 June 03:
Total Revenue - $1,528.2 million
NPAT attributable to members of the combined economic entity - $56.7 million.

So, this roughly equates to EPS for FY03 of 11.3 cents per share. Resulting in a historical p/e ratio of 23 times. Furthermore, the net profit margin is clearly a fairly thin 3.7%.

There's also a statement of financial position on page 136 which shows that gearing at 30 December 03 is 277%! I used the total equity figure, as opposed to ordinary shareholders' equity which I haven't calculated, but the calculation is:

Financial debt – cash / total equity; or,

($533.1 million – $26.3 million) / $182.8 million = 2.77

From what I've read in the press over the past 12 months, the VCs that bought Pacific Brands and closed some of its factory facilities and eradicated some brands, but bought some others brands as well. This must have cost a lot (given the current debt levels), has resulted in a large amortisation bill ($82.8 million for the FY ending 30 June 2003).

As a result, I can't help but think that we'll all have the opportunity of buying into Pacific Brands at much lower valuation multiples than currently available over the next few years. Why? Well, the company's operating on thin margins and any recession will force many of us to go looking for cheaper non-branded pants and socks. Furthermore, with that sort of debt, if interest rates go much higher or cash flows run any lower (which could happen if there's a downturn in consumer spending) it could get sticky very quickly. Also, how will management fund any expansion of the business? My guess is by diluting existing shareholders' equity with placements, rights issues and the like.

Does the proposed Pacific Brands IPO price send out signals about current valuations in the market at large, I wonder?

My guess is it might offer a stag profit in the short term, but you are more than likely going to get in at a cheaper price in the medium term.

[whatsup]

Great call CAM ,as a matter of interest what was the address of trhe other site?

[MeNoBatty]

Agree with Cam's post, however the line about debt levels is a bit of a furphy. Remember this is a Private Equity sale and those guys are highly leveraged. Banks will lend up to 4 x EBITDA on a buy out. FY 2003 EBITDA was $143m and assuming the banks lent the $491m non current liability then that is 3.4x EBITDA which is typical of that sort of transaction.

Batty's prediction - modest stag, say 10-20% followed by a cooling off for a year or more until growth oportunities are understood by market.